- Analysts from UBS have prepared a timeline of key events to watch for over the next six months.
- They conducted scenario analysis to determine the impact on financial markets if trade tensions escalate.
- UBS said the worst-case scenario could see US stocks fall by more than 20%.
Global markets have so far been pretty sanguine in their response to lingering trade tensions between the US and China.
But further threats by the Trump administration to impose a 10% tariff on another $200 billion of Chinese goods prompted a sharper reaction overnight.
Yesterday’s 1.8% decline in Chinese stocks was followed by more selling in US and European markets while the US dollar strengthened and commodity prices slumped.
If increasing trade tensions do give rise to further market volatility, it’ll be important to know what to look out for in the coming months.
Here’s a timeline of key events provide by UBS, including what the bank thinks will happen at each point:
As part of a deep dive on the latest trade war developments, a global team of UBS economists and strategists outlined three potential scenarios.
Scenario 1 is what’s already been implemented, with tit-for-tat tariffs on around $US34 billion worth of goods from each country.
They called Scenario 2 “Escalation” and Scenario 3 “Trade War”. Scenario 2 would see the US carry out its threat to impose tariffs on the additional $US200 billion worth of goods. Importantly, UBS expects this will happen.
The analysts estimate that China will then respond with more tariffs of its own on a further $55 billion of US goods. Given China exports more to the US than it imports, the Chinese response is also likely to include non-tariff measures to make it proportional.
In addition, UBS noted the US is currently conducting an investigation into car imports. Scenario 2 includes an estimated 25% tariff on all car imports globally.
The “Trade War” scenario would see a further US response to the next round of China tariffs.
“We assume a 30% US tariff on all imports from China except smartphones (essentially about $US456 billion worth of goods),” UBS said. China would implement a similar measure along with other non-tariff barriers, resulting in protective measures equivalent to a 91% tariff on all US goods.
Here’s the potential impact on key financial markets as a result of scenarios 2 and 3 playing out: